Hyflux’s shares, preference shares, perps suffer selloff

SINGAPORE (Aug 23): Securities issued by Hyflux have been under selling pressure since Aug 12. Besides its shares falling 5.7% to 50 cents, a tranche of perpetual securities the company issued only in May with a coupon of 6% have fallen 6.5% below par to 93.7 cents. On top of that Hyflux’s preference shares have fallen 5.8% to $94.37 on relatively high volume, sparking a query from Singapore Exchange on Aug 19 about unusual trading activity. Hyflux promptly responded to the query, stating that it “is not aware of any information not previously announced concerning the company or its subsidiaries which explain the trading”.

In fact, announcements from Hyflux over the last few months explain a lot about its current situation. The issue of perps in May was upsized from an initial $300 million to $500 million due to strong demand at time from investors hunting for yield. Yield instruments issued by companies like Aspial and Perennial Real Estate Holdings around that time were also warmly received by investors. Hyflux said that the funds it raised would be partly used for the redemption of $100 million of 3.5% bonds, and some $175 million of 4.80% perps. The company still has some $300 million of 5.75% perps issued in January 2014 outstanding. This tranche of perps are also trading below par.

Since May, however, the mood in the market has changed, with investors becoming more concerned about defaults and financial stress at companies with large debt burdens and looming debt maturities. In the case of Hyflux, its debt costs are also on the rise following the issue of its latest tranche of perps in May. Annual interest on the $500 million would top some $30 million, which it is to pay semi-annually. The first payment is in November. It also pays some $12 million annually on its preference shares. The next semi-annual payment is in October. However, these financing costs will be mitigated somewhat by the redemption of its 3.5% bonds and 4.80% perps.

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